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1 2 3 4 5 6 7 8 9 In re 10 TC GLOBAL, INC., 11 Debtor. 12 13 14 15 16 17 18 19 20 21 22 23
HONORABLE KAREN A. OVERSTREET **HEARING DATE: FRIDAY, OCT. 26, 2012 **HEARING TIME: 9:30 A.M. LOCATION: SEATTLE, COURTROOM 7206 **RESPONSES DUE: AT TIME OF HEARING **SUBJECT TO ENTRY OF ORDER SHORTENING TIME FOR HEARING
UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF WASHINGTON
No. 12-20253 EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRST-POSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING
TC Global, Inc. (the “Debtor”), by and through its proposed attorneys, moves this Court on an emergency basis pursuant to Sections 105(a), 361, 362, 363, 364, and 365 of Bankruptcy Code for entry of an order granting the following relief: Authorizing, the Debtor, on interim basis, to immediately enter into and close a debtor in possession bridge financing agreement (the “Bridge Financing Agreement”) with Gibraltar Business Capital ("Gibraltar ") upon terms and conditions as detailed herein. Authorizing the granting in favor of Gibraltar, on an interim basis, of a super-priority administrative expense claim and first-position security interest in all of the Debtor’s
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EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 1
B USH S TROUT & K ORNFELD
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assets to secure advances under the Bridge Financing Agreement, with certain limited exceptions as detailed herein. Setting a hearing on final approval of the Bridge Financing Agreement and the granting of post-petition security interests. This emergency motion (the “Motion”) is based upon the files and records herein and the accompanying Declarations of Scott Pearson and Matthew Farrell. FACTUAL BACKGROUND The Debtor commenced this case on October 10, 2012 (the “Petition Date”) by filing a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtor has continued in possession of its property and has continued to operate and manage its business as a debtor in possession pursuant to §§ 1107(a) and 1108 of the Bankruptcy Code. A. History of Company and Operations. The Debtor is a Washington corporation based in Seattle. Founded in 1992, the Debtor operates as Tully's Coffee, a specialty gourmet coffee retailer. The company generates revenues through two operating divisions: Its retail division operates Tully’s Coffee retail stores in the United States, which sell specialty coffees, espresso, baked goods, pastries, and coffee-related supplies. The company’s specialty division oversees the franchising of Tully’s Coffee retail stores. It also manages the company’s international joint venture, foreign licensing, and business development activities. The Debtor also generates revenues through licensing fees from U.S. and foreign franchisees and sales of products to foreign customers. Between 1992 and 2001, the Debtor expanded to 114 company-operated stores. In addition, the Debtor purchased Spinelli Coffee in Northern California and the Coffee Station in Southern California for $6.9 million and $2.7 million, respectively. Overall, the cash generated from operations
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was insufficient to fully fund operations and the expansion. The Debtor’s financial performance was negatively impacted by the economic downturn that affected Seattle and San Francisco, at a time when the market for new equity issues was significantly deteriorating. As a result, in 2002 the Debtor launched an aggressive effort to develop a wholesale coffee business to drive further top line revenue and profit. Also in 2002, the Debtor raised additional capital through the sale of rights to all of Asia to UCC (a Japanese company) for $14.3 million. In 2006, the Debtor again raised additional capital by selling all rights in Japan, including the brand, wholesale operations and roasting, to Tully’s Coffee Japan for $17.9M. In 2009, the Debtor completed the sale of the assets associated with its wholesale business and supply chain (including the Tully’s business names and trademarks) to Green Mountain Coffee Roasters, Inc. (“GMCR”), a Delaware corporation (the “Green Mountain Transaction”). In connection with the closing of the Green Mountain Transaction, the Debtor entered into a Supply Agreement, a License Agreement, and a Noncompetition Agreement with GMCR. The Debtor also secured a perpetual license to use the “Tully’s” brand and other intellectual property rights in connection with retail operations worldwide (excluding Japan), and wholesale business outside of North America, utilizing an exclusive coffee supply arrangement with GMCR. The Green Mountain Transaction generated approximately $40 million in cash and allowed the Debtor, among other things, to retire secured debt in the amount of $19.3 million and to make a $5.9 million distribution to its shareholders. Going forward, the Debtor’s core business was reduced to retail, franchised and licensed store locations, and the company changed its corporate name to “TC Global, Inc.”
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During 2010 and 2011, the Debtor began implementing measures to “right size” its business through various initiatives and cost-cutting measures, including the closure of underperforming company-owned locations, labor optimization, and aggressive expense reductions. The Debtor recently engaged the firm of Deloitte Financial Advisory Services LLP (“Deloitte”) to assist in that effort. Deloitte has assisted the Debtor in a number of ways, including (i) developing alternative courses of action and strategies, (ii) confirming management’s intentions to close locations based upon (among other factors) operations and existing lease terms, and (iii) identifying and contacting numerous entities regarding the possibility of acquiring some or all of the Debtor’s assets and operations, providing debtor-in-possession financing, or both. After extensive diligence and advice from outside expert consultants, the Debtor ultimately determined that it would need to close a substantial number of locations in order to ultimately achieve operating profit. The Debtor therefore made the difficult decision to file this case so it could continue its downsizing efforts, conserve its cash and manage issues related to the closed locations. As of the Petition Date the Debtor operated 57 company-owned and 12 franchise locations. Since that time, the Debtor has closed nine locations that had chronically under-performed and has moved for authority to reject the leases of these locations. There are also 71 additional Tully’s locations that operate as licensees in locations such as grocery stores, airports, university campuses and hotels. The Debtor has approximately 520 employees. B. Pre-Bankruptcy Sale and Financing Efforts. Commencing in early September 2012, the Debtor has been engaged in efforts to locate a capital provider and/or purchaser for the company. Working with Deloitte, the Debtor prepared a comprehensive Offering Memorandum and created a virtual data-room site at which key diligence information could be reviewed and analyzed.
EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 4
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The Debtor and Deloitte identified and contacted fifty-six capital providers as possible candidates for either providing post-petition financing and/or purchasing the company or its assets. Of these entities, thirteen indicated further interest, signed non-disclosure agreements and were provided the Offering Memorandum and given access to the data room. To date, a small number of parties have indicated interest in either serving as both DIP lender and stalking horse bidder or solely as DIP lender. C. Absence of Operating Line. The Debtor did not have the benefit of a line of credit or similar financing for its operations as of the Petition Date. The Debtor’s operations were funded exclusively from cash generated from its operations and from trade credit from its vendors and suppliers. With the commencement of this case, the Debtor’s business planning and budget forecasting assume that there will be no further trade credit and that the Debtor will need to pay its vendors on a COD or CIA basis. The Debtor, with the assistance of its financial consultants at Deloitte, has prepared a detailed budget of operations through the week ending March 2, 2013 (the "Budget"). A copy of the budget is attached as Exhibit A to the Farrell Declaration (the "Budget"). As can be seen, the Debtor’s available cash will be almost fully depleted by the end of the week ending October 27, 2012. Because the level of remaining cash will be so low, there will at that point be no assurance that the Debtor will be able to fully fund payroll and other operating expenses during the week ending November 3, 2012. Under the circumstances, the Debtor might be forced to cease operations rather than accrue expenses without the assurances that they will be paid. RELIEF REQUESTED The Debtor requires immediate access to postpetition financing in order to continue paying its employees, maintain business operations, preserve its assets, and preserve the Debtor as an on-going
EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 5
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concern. In the absence of such financing, the Debtor and the estate will suffer immediate and irreparable harm to the Debtor. The Debtor proposes to obtain from Gibraltar interim bridge financing consisting of a facility of up to $300,000 for use in accordance with the Bridge Financing Agreement and the Budget pursuant to §§ 364(c), (d) and (e) of the Bankruptcy Code. The materials terms are set forth in the letter of intent that is attached as Exhibit B to the Farrell Declaration. A copy of the final agreement (the “Bridge Financing Agreement”) will be available prior to the hearing on this motion. In general terms, Gibraltar would advance to the Debtor $300,000 as the purchase price for future revenues from credit card transactions totaling $337,500 (the “Loan Payoff”). All credit card transactions would continue to be deposited with the Debtor’s ACH processor. Gibraltar would collect a daily payment of $5,250 until the Loan Payoff amount was fully satisfied. Gibraltar agreed to eliminate a prior lockbox arrangement that would have been administratively more challenging for the Debtor. As security for all obligations of the Debtor to Gibraltar, the Debtor shall grant Gibraltar a super-priority administrative expense and first and primary lien on the Debtor’s presently owned and hereafter acquired prepetition and post-petition assets (the "Collateral") pursuant to Section 364(c) of the Bankruptcy Code, provided that the Collateral shall not include avoidance actions arising solely under chapter 5 of the Bankruptcy Code. The materials terms of the Bridge Financing Agreement are as follows:
Capital Advance: Purchased Rights: Additional Purchased Rights: $300,000 $337,500 of Seller’s future revenues. From time to time during the DIP Facility based on Seller’s request and approval of the Bankruptcy Court, in Purchaser’s sole discretion Purchaser will consider making additional advances under the terms set forth in this letter. B USH S TROUT & K ORNFELD
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EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 6
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Collections by Gibraltar:
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Conditions Precedent: Anticipated Time to Recover the Advance: Covenants: Uses: Security/Collections:
Purchaser will collect an ACH debit of $5,250 per day until fully repaid. The DIP Facility shall be a “true sale” of the Purchased Rights. As additional security for all obligations of Seller to Gibraltar, Seller and the US Bankruptcy Court shall grant Gibraltar a super priority administrative expense and first and primary security interest in all of Seller’s presently owned and hereafter acquired assets (the “Collateral”) pursuant to Section 364(c) of the Bankruptcy Code. \ The proceeds from the DIP Facility at closing will be used for working capital, and all closing fees, audit, legal and financing expenses associated with the transaction. Gibraltar anticipates the Purchased Rights will be fully recovered in approximately three months. Store level revenue at 85% pursuant to amounts forecasted in Budget, tested on a weekly basis. The Advance will be made available pursuant to the Bridge Financing Agreement and related documentation to include such terms as are usual and customary in a financing facility provided to a debtor or debtor in possession and in form and substance satisfactory to Purchaser. The Advance will further be subject to Purchaser’s approval, in its sole discretion, of an appropriate motion and bankruptcy court order authorizing the DIP Facility, which order shall, inter alia, (i) approve the sale of the Purchased Rights pursuant to Section 363(b) and (f) of the Bankruptcy Code; (ii) approve the super priority administrative expense and first and primary liens granted by the DIP Facility pursuant to 364(c) of the Bankruptcy Code; and (iii) provide that any future debtor in possession financing facility provided by a party other than Purchaser shall not “prime” the superpriority administrative expense and first and primary security interest granted by the DIP Facility without the express written consent of Purchaser or, in the alternative, shall satisfy the DIP Facility in full upon closing. A verification of Heartland Payment Systems receipts and verification of last twelve months bank statements, discussion with The Boeing Company and Green B USH S TROUT & K ORNFELD
LAW OFFICES LLP
Documentation:
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EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 7
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Diligence Deposit:
Mountain Coffee Roasters, N.A. about the existing contract(s), and review of the updated DIP Budget shall be completed prior to diligence An initial diligence deposit of fifteen thousand dollars ($15,000) will be due upon the acceptance of this proposal (“Deposit”); the Deposit shall be used for legal expenses and out of pocket costs in order to fund the DIP Facility. Upon receipt of the Deposit and a signed version of this proposal letter, Gibraltar will complete its credit review and other diligence procedures, including but not limited to document preparation and local, state, and federal lien, suits, judgment and bankruptcy searches. All documentation shall be at the sole but reasonable discretion of Gibraltar. Prior to closing, should the Lender require an additional deposit to complete its credit and legal investigation, all loan documentation, and other expenses associated with the transaction, Lender may seek a further deposit (“Second Deposit”). Upon closing of the above Facility, Gibraltar will refund the unspent portion of the First and Second Deposits(s). However, if the transaction does not close by October 31, 2012 through no fault of Gibraltar, Gibraltar, in addition to all other damages, shall earn and retain the Diligence Deposit as partial settlement of liquidated damages and as compensation for the expenses incurred by Gibraltar.
DISCUSSION The proposed financing is a portion of an overall strategy in the Debtor’s prosecution of this case. The advance provided under the Bridge Financing Agreement will permit the Debtor the time necessary to complete negotiations with other potential lenders as to a DIP credit facility in the $1.0-$2.0 million range. This larger facility will then carry the Debtor through a process by which the assets related to the Debtor’s ongoing operations can be sold in a reasonable fashion. If such a sale can be completed, a return can be generated for creditors. Unfortunately, the circumstances the Debtor is presently facing are stark. Specifically, the Debtor will be forced to close each of its locations and otherwise suspend all operations by the close
B USH S TROUT & K ORNFELD
LAW OFFICES LLP
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EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 8
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of business on Sunday, October 28, 2012, in order to assure that it has sufficient cash to pay its employees and related employment taxes through that day of operations. Beyond that day there is a genuine risk that the Debtor will be unable to fund postpetition payroll and other operating expenses. As a result, prudence will dictate that operations cease. In that event, the going-concern value of the Debtor will be irretrievably lost. In the absence of the financing that the Bridge Financing Agreement would permit the Debtor to receive, the Debtor and the estate will suffer immediate and irreparable harm. The Debtor and its professionals have made a significant and comprehensive effort to obtain postpetition financing, whether on terms more favorable to the estate or otherwise. To date, the Debtor has contacted some 56 separate entities as potential capital providers or buyers for the Debtor’s assets operations. While a few of these entities expressed interest in providing the Debtor with postpetition financing, no entity other than Gibraltar committed to proceed quickly enough to meet the Debtor’s short-term cash needs. The Debtor is otherwise unable to obtain credit allowable only under Bankruptcy Code §§ 364(c)(1), (c)(2) and (c)(3), except under the terms and conditions provided in the proposed Order.1 Sections 364(b) and (c) of the Bankruptcy Code provide: (b) The court, after notice and a hearing, may authorize the trustee to obtain unsecured credit or to incur unsecured debt other than under subsection (a) of this section, allowable under section 503(b)(1) of this title as an administrative expense. (c) If the trustee is unable to obtain unsecured credit allowable under section 503 (b) (1) of this title as an administrative expense, the court, after
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Section 364(d) does not require that a debtor seek financing from every possible lender, but must demonstrate sufficient efforts to obtain financing under the applicable circumstances. See e.g. Bray v. Shenandoah Fed. Savings & Loan Ass’n (In re Snowshoe Co.), 789 F.2d 1085, 1088 (4th Cir. 1986); In re 495 Central Park Ave. Corp., 136 B.R. 626, 631 (Bankr. S.D.N.Y. 1992); In re Aqua Assocs., 123 B.R. 192, 197 (Bankr. E.D. Pa. 1991).
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notice and a hearing, may authorize the obtaining of credit or the incurring of debt – (1) with priority over any or all administrative expenses of the kind specified in section 503 (b) or, 507 (b) of this title; secured by a lien on property of the estate that is not otherwise subject to a lien; or secured by a junior lien on property of the estate that is subject to a lien.
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The proposed terms and conditions of the Bridge Financing Agreement are fair and reasonable and were negotiated by the parties in good faith and at arm’s length. The cost of the funds is above the amount that would be charged by a commercial lender in an ordinary transaction, but the Debtor is not in a position – either financially or temporally – to obtain such financing. Other lenders in comparable financing transactions (which are not presently available at this time) have charge fees of up to 2% upon both the initiation and the payoff of their credit facility, and additional monthly fees for monitoring collateral and against any unused portion of the total commitment. Under the circumstances, the Debtor has concluded that the terms of the financing are within market terms and that the financing will allow the Debtor to maintain its operations going forward until negotiations with a longer-term DIP lender can be concluded. Finally, the terms and conditions of the Bridge Financing Agreement were negotiated by the parties in good faith, and were instituted for the purpose of enabling Debtor to meet ongoing expenses while in chapter 11 and implement an orderly sale and of its assets for the benefit of creditors.
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CONCLUSION Wherefore, the Debtor respectfully requests that the Court enter an order allowing it to enter into the Bridge Financing Agreement and to consummate the financing transaction contemplated thereby. DATED this 23rd day of October, 2012. BUSH STROUT & KORNFELD LLP
By /s/ James L. Day Gayle E. Bush, WSBA #07318 James L. Day, WSBA #20474 Attorneys for TC Global, Inc.
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EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 11
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HONORABLE KAREN A. OVERSTREET **HEARING DATE: FRIDAY, OCT. 26, 2012 **HEARING TIME: 9:30 A.M. LOCATION: SEATTLE, COURTROOM 7206 **RESPONSES DUE: AT TIME OF HEARING **SUBJECT TO ENTRY OF ORDER SHORTENING TIME FOR HEARING
UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF WASHINGTON
No. 12-20253 EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRST-POSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING
TC Global, Inc. (the “Debtor”), by and through its proposed attorneys, moves this Court on an emergency basis pursuant to Sections 105(a), 361, 362, 363, 364, and 365 of Bankruptcy Code for entry of an order granting the following relief: Authorizing, the Debtor, on interim basis, to immediately enter into and close a debtor in possession bridge financing agreement (the “Bridge Financing Agreement”) with Gibraltar Business Capital ("Gibraltar ") upon terms and conditions as detailed herein. Authorizing the granting in favor of Gibraltar, on an interim basis, of a super-priority administrative expense claim and first-position security interest in all of the Debtor’s
1977 20121 xj21d709dy.002
EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 1
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assets to secure advances under the Bridge Financing Agreement, with certain limited exceptions as detailed herein. Setting a hearing on final approval of the Bridge Financing Agreement and the granting of post-petition security interests. This emergency motion (the “Motion”) is based upon the files and records herein and the accompanying Declarations of Scott Pearson and Matthew Farrell. FACTUAL BACKGROUND The Debtor commenced this case on October 10, 2012 (the “Petition Date”) by filing a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtor has continued in possession of its property and has continued to operate and manage its business as a debtor in possession pursuant to §§ 1107(a) and 1108 of the Bankruptcy Code. A. History of Company and Operations. The Debtor is a Washington corporation based in Seattle. Founded in 1992, the Debtor operates as Tully's Coffee, a specialty gourmet coffee retailer. The company generates revenues through two operating divisions: Its retail division operates Tully’s Coffee retail stores in the United States, which sell specialty coffees, espresso, baked goods, pastries, and coffee-related supplies. The company’s specialty division oversees the franchising of Tully’s Coffee retail stores. It also manages the company’s international joint venture, foreign licensing, and business development activities. The Debtor also generates revenues through licensing fees from U.S. and foreign franchisees and sales of products to foreign customers. Between 1992 and 2001, the Debtor expanded to 114 company-operated stores. In addition, the Debtor purchased Spinelli Coffee in Northern California and the Coffee Station in Southern California for $6.9 million and $2.7 million, respectively. Overall, the cash generated from operations
EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 2
B USH S TROUT & K ORNFELD
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was insufficient to fully fund operations and the expansion. The Debtor’s financial performance was negatively impacted by the economic downturn that affected Seattle and San Francisco, at a time when the market for new equity issues was significantly deteriorating. As a result, in 2002 the Debtor launched an aggressive effort to develop a wholesale coffee business to drive further top line revenue and profit. Also in 2002, the Debtor raised additional capital through the sale of rights to all of Asia to UCC (a Japanese company) for $14.3 million. In 2006, the Debtor again raised additional capital by selling all rights in Japan, including the brand, wholesale operations and roasting, to Tully’s Coffee Japan for $17.9M. In 2009, the Debtor completed the sale of the assets associated with its wholesale business and supply chain (including the Tully’s business names and trademarks) to Green Mountain Coffee Roasters, Inc. (“GMCR”), a Delaware corporation (the “Green Mountain Transaction”). In connection with the closing of the Green Mountain Transaction, the Debtor entered into a Supply Agreement, a License Agreement, and a Noncompetition Agreement with GMCR. The Debtor also secured a perpetual license to use the “Tully’s” brand and other intellectual property rights in connection with retail operations worldwide (excluding Japan), and wholesale business outside of North America, utilizing an exclusive coffee supply arrangement with GMCR. The Green Mountain Transaction generated approximately $40 million in cash and allowed the Debtor, among other things, to retire secured debt in the amount of $19.3 million and to make a $5.9 million distribution to its shareholders. Going forward, the Debtor’s core business was reduced to retail, franchised and licensed store locations, and the company changed its corporate name to “TC Global, Inc.”
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During 2010 and 2011, the Debtor began implementing measures to “right size” its business through various initiatives and cost-cutting measures, including the closure of underperforming company-owned locations, labor optimization, and aggressive expense reductions. The Debtor recently engaged the firm of Deloitte Financial Advisory Services LLP (“Deloitte”) to assist in that effort. Deloitte has assisted the Debtor in a number of ways, including (i) developing alternative courses of action and strategies, (ii) confirming management’s intentions to close locations based upon (among other factors) operations and existing lease terms, and (iii) identifying and contacting numerous entities regarding the possibility of acquiring some or all of the Debtor’s assets and operations, providing debtor-in-possession financing, or both. After extensive diligence and advice from outside expert consultants, the Debtor ultimately determined that it would need to close a substantial number of locations in order to ultimately achieve operating profit. The Debtor therefore made the difficult decision to file this case so it could continue its downsizing efforts, conserve its cash and manage issues related to the closed locations. As of the Petition Date the Debtor operated 57 company-owned and 12 franchise locations. Since that time, the Debtor has closed nine locations that had chronically under-performed and has moved for authority to reject the leases of these locations. There are also 71 additional Tully’s locations that operate as licensees in locations such as grocery stores, airports, university campuses and hotels. The Debtor has approximately 520 employees. B. Pre-Bankruptcy Sale and Financing Efforts. Commencing in early September 2012, the Debtor has been engaged in efforts to locate a capital provider and/or purchaser for the company. Working with Deloitte, the Debtor prepared a comprehensive Offering Memorandum and created a virtual data-room site at which key diligence information could be reviewed and analyzed.
EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 4
B USH S TROUT & K ORNFELD
LAW OFFICES
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The Debtor and Deloitte identified and contacted fifty-six capital providers as possible candidates for either providing post-petition financing and/or purchasing the company or its assets. Of these entities, thirteen indicated further interest, signed non-disclosure agreements and were provided the Offering Memorandum and given access to the data room. To date, a small number of parties have indicated interest in either serving as both DIP lender and stalking horse bidder or solely as DIP lender. C. Absence of Operating Line. The Debtor did not have the benefit of a line of credit or similar financing for its operations as of the Petition Date. The Debtor’s operations were funded exclusively from cash generated from its operations and from trade credit from its vendors and suppliers. With the commencement of this case, the Debtor’s business planning and budget forecasting assume that there will be no further trade credit and that the Debtor will need to pay its vendors on a COD or CIA basis. The Debtor, with the assistance of its financial consultants at Deloitte, has prepared a detailed budget of operations through the week ending March 2, 2013 (the "Budget"). A copy of the budget is attached as Exhibit A to the Farrell Declaration (the "Budget"). As can be seen, the Debtor’s available cash will be almost fully depleted by the end of the week ending October 27, 2012. Because the level of remaining cash will be so low, there will at that point be no assurance that the Debtor will be able to fully fund payroll and other operating expenses during the week ending November 3, 2012. Under the circumstances, the Debtor might be forced to cease operations rather than accrue expenses without the assurances that they will be paid. RELIEF REQUESTED The Debtor requires immediate access to postpetition financing in order to continue paying its employees, maintain business operations, preserve its assets, and preserve the Debtor as an on-going
EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 5
B USH S TROUT & K ORNFELD
LAW OFFICES
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concern. In the absence of such financing, the Debtor and the estate will suffer immediate and irreparable harm to the Debtor. The Debtor proposes to obtain from Gibraltar interim bridge financing consisting of a facility of up to $300,000 for use in accordance with the Bridge Financing Agreement and the Budget pursuant to §§ 364(c), (d) and (e) of the Bankruptcy Code. The materials terms are set forth in the letter of intent that is attached as Exhibit B to the Farrell Declaration. A copy of the final agreement (the “Bridge Financing Agreement”) will be available prior to the hearing on this motion. In general terms, Gibraltar would advance to the Debtor $300,000 as the purchase price for future revenues from credit card transactions totaling $337,500 (the “Loan Payoff”). All credit card transactions would continue to be deposited with the Debtor’s ACH processor. Gibraltar would collect a daily payment of $5,250 until the Loan Payoff amount was fully satisfied. Gibraltar agreed to eliminate a prior lockbox arrangement that would have been administratively more challenging for the Debtor. As security for all obligations of the Debtor to Gibraltar, the Debtor shall grant Gibraltar a super-priority administrative expense and first and primary lien on the Debtor’s presently owned and hereafter acquired prepetition and post-petition assets (the "Collateral") pursuant to Section 364(c) of the Bankruptcy Code, provided that the Collateral shall not include avoidance actions arising solely under chapter 5 of the Bankruptcy Code. The materials terms of the Bridge Financing Agreement are as follows:
Capital Advance: Purchased Rights: Additional Purchased Rights: $300,000 $337,500 of Seller’s future revenues. From time to time during the DIP Facility based on Seller’s request and approval of the Bankruptcy Court, in Purchaser’s sole discretion Purchaser will consider making additional advances under the terms set forth in this letter. B USH S TROUT & K ORNFELD
LAW OFFICES
1977 20121 xj21d709dy.002
EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 6
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Collections by Gibraltar:
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Conditions Precedent: Anticipated Time to Recover the Advance: Covenants: Uses: Security/Collections:
Purchaser will collect an ACH debit of $5,250 per day until fully repaid. The DIP Facility shall be a “true sale” of the Purchased Rights. As additional security for all obligations of Seller to Gibraltar, Seller and the US Bankruptcy Court shall grant Gibraltar a super priority administrative expense and first and primary security interest in all of Seller’s presently owned and hereafter acquired assets (the “Collateral”) pursuant to Section 364(c) of the Bankruptcy Code. \ The proceeds from the DIP Facility at closing will be used for working capital, and all closing fees, audit, legal and financing expenses associated with the transaction. Gibraltar anticipates the Purchased Rights will be fully recovered in approximately three months. Store level revenue at 85% pursuant to amounts forecasted in Budget, tested on a weekly basis. The Advance will be made available pursuant to the Bridge Financing Agreement and related documentation to include such terms as are usual and customary in a financing facility provided to a debtor or debtor in possession and in form and substance satisfactory to Purchaser. The Advance will further be subject to Purchaser’s approval, in its sole discretion, of an appropriate motion and bankruptcy court order authorizing the DIP Facility, which order shall, inter alia, (i) approve the sale of the Purchased Rights pursuant to Section 363(b) and (f) of the Bankruptcy Code; (ii) approve the super priority administrative expense and first and primary liens granted by the DIP Facility pursuant to 364(c) of the Bankruptcy Code; and (iii) provide that any future debtor in possession financing facility provided by a party other than Purchaser shall not “prime” the superpriority administrative expense and first and primary security interest granted by the DIP Facility without the express written consent of Purchaser or, in the alternative, shall satisfy the DIP Facility in full upon closing. A verification of Heartland Payment Systems receipts and verification of last twelve months bank statements, discussion with The Boeing Company and Green B USH S TROUT & K ORNFELD
LAW OFFICES LLP
Documentation:
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EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 7
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Diligence Deposit:
Mountain Coffee Roasters, N.A. about the existing contract(s), and review of the updated DIP Budget shall be completed prior to diligence An initial diligence deposit of fifteen thousand dollars ($15,000) will be due upon the acceptance of this proposal (“Deposit”); the Deposit shall be used for legal expenses and out of pocket costs in order to fund the DIP Facility. Upon receipt of the Deposit and a signed version of this proposal letter, Gibraltar will complete its credit review and other diligence procedures, including but not limited to document preparation and local, state, and federal lien, suits, judgment and bankruptcy searches. All documentation shall be at the sole but reasonable discretion of Gibraltar. Prior to closing, should the Lender require an additional deposit to complete its credit and legal investigation, all loan documentation, and other expenses associated with the transaction, Lender may seek a further deposit (“Second Deposit”). Upon closing of the above Facility, Gibraltar will refund the unspent portion of the First and Second Deposits(s). However, if the transaction does not close by October 31, 2012 through no fault of Gibraltar, Gibraltar, in addition to all other damages, shall earn and retain the Diligence Deposit as partial settlement of liquidated damages and as compensation for the expenses incurred by Gibraltar.
DISCUSSION The proposed financing is a portion of an overall strategy in the Debtor’s prosecution of this case. The advance provided under the Bridge Financing Agreement will permit the Debtor the time necessary to complete negotiations with other potential lenders as to a DIP credit facility in the $1.0-$2.0 million range. This larger facility will then carry the Debtor through a process by which the assets related to the Debtor’s ongoing operations can be sold in a reasonable fashion. If such a sale can be completed, a return can be generated for creditors. Unfortunately, the circumstances the Debtor is presently facing are stark. Specifically, the Debtor will be forced to close each of its locations and otherwise suspend all operations by the close
B USH S TROUT & K ORNFELD
LAW OFFICES LLP
1977 20121 xj21d709dy.002
EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 8
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of business on Sunday, October 28, 2012, in order to assure that it has sufficient cash to pay its employees and related employment taxes through that day of operations. Beyond that day there is a genuine risk that the Debtor will be unable to fund postpetition payroll and other operating expenses. As a result, prudence will dictate that operations cease. In that event, the going-concern value of the Debtor will be irretrievably lost. In the absence of the financing that the Bridge Financing Agreement would permit the Debtor to receive, the Debtor and the estate will suffer immediate and irreparable harm. The Debtor and its professionals have made a significant and comprehensive effort to obtain postpetition financing, whether on terms more favorable to the estate or otherwise. To date, the Debtor has contacted some 56 separate entities as potential capital providers or buyers for the Debtor’s assets operations. While a few of these entities expressed interest in providing the Debtor with postpetition financing, no entity other than Gibraltar committed to proceed quickly enough to meet the Debtor’s short-term cash needs. The Debtor is otherwise unable to obtain credit allowable only under Bankruptcy Code §§ 364(c)(1), (c)(2) and (c)(3), except under the terms and conditions provided in the proposed Order.1 Sections 364(b) and (c) of the Bankruptcy Code provide: (b) The court, after notice and a hearing, may authorize the trustee to obtain unsecured credit or to incur unsecured debt other than under subsection (a) of this section, allowable under section 503(b)(1) of this title as an administrative expense. (c) If the trustee is unable to obtain unsecured credit allowable under section 503 (b) (1) of this title as an administrative expense, the court, after
1
Section 364(d) does not require that a debtor seek financing from every possible lender, but must demonstrate sufficient efforts to obtain financing under the applicable circumstances. See e.g. Bray v. Shenandoah Fed. Savings & Loan Ass’n (In re Snowshoe Co.), 789 F.2d 1085, 1088 (4th Cir. 1986); In re 495 Central Park Ave. Corp., 136 B.R. 626, 631 (Bankr. S.D.N.Y. 1992); In re Aqua Assocs., 123 B.R. 192, 197 (Bankr. E.D. Pa. 1991).
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notice and a hearing, may authorize the obtaining of credit or the incurring of debt – (1) with priority over any or all administrative expenses of the kind specified in section 503 (b) or, 507 (b) of this title; secured by a lien on property of the estate that is not otherwise subject to a lien; or secured by a junior lien on property of the estate that is subject to a lien.
3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 (2) (3)
The proposed terms and conditions of the Bridge Financing Agreement are fair and reasonable and were negotiated by the parties in good faith and at arm’s length. The cost of the funds is above the amount that would be charged by a commercial lender in an ordinary transaction, but the Debtor is not in a position – either financially or temporally – to obtain such financing. Other lenders in comparable financing transactions (which are not presently available at this time) have charge fees of up to 2% upon both the initiation and the payoff of their credit facility, and additional monthly fees for monitoring collateral and against any unused portion of the total commitment. Under the circumstances, the Debtor has concluded that the terms of the financing are within market terms and that the financing will allow the Debtor to maintain its operations going forward until negotiations with a longer-term DIP lender can be concluded. Finally, the terms and conditions of the Bridge Financing Agreement were negotiated by the parties in good faith, and were instituted for the purpose of enabling Debtor to meet ongoing expenses while in chapter 11 and implement an orderly sale and of its assets for the benefit of creditors.
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EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 10
B USH S TROUT & K ORNFELD
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CONCLUSION Wherefore, the Debtor respectfully requests that the Court enter an order allowing it to enter into the Bridge Financing Agreement and to consummate the financing transaction contemplated thereby. DATED this 23rd day of October, 2012. BUSH STROUT & KORNFELD LLP
By /s/ James L. Day Gayle E. Bush, WSBA #07318 James L. Day, WSBA #20474 Attorneys for TC Global, Inc.
1977 20121 xj21d709dy.002
EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING – Page 11
B USH S TROUT & K ORNFELD
LAW OFFICES
LLP
5000 Two Union Square 601 Union Street Seattle, Washington 98101-2373 Telephone (206) 292-2110 Facsimile (206) 292-2104
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